Review: Insider Secrets to Financing Your Real Estate Investments

An overview of Frank Gallinelli’s Book

I’ve been a strong believer of the ‘brilliance in the basics’ principle for a long time and this book fits the bill when it comes to REI (real estate investment).Insider Secrets to Financing Your Real Estate Investmentsby Frank Gallinelli was published after his book What Every Real Estate Investor Needs to Know About Cash Flowbut it is most definitely its prerequisite. During my incipient phase of real estate investing I attempted to take in all the information on cash flow from the first book, which was too early for me to retain the lion’s share. Learn from my mistake, if you are just getting started read the financing book first and avoid unwarranted ‘analysis paralysis’. While the title indicates it’s a book on finance it’s truly an overview of the REI process. Starting at identifying your comfort zone and proceeding through phases such as (but not limited to) analyzing, due diligence, financing, negotiating, closing, and finally managing. Should you already have experience this book (along with the other) might still be beneficial to review. I mentioned ‘brilliance in the basics’ but the author states it thoroughly during the intro,

You need to start with the basics, not with exotic or obscure get-rich-quick techniques. Then you need to implement those fundamentals and develop your skills through practice.

From there he addresses those that already have some experience, saying that while sections of the material will be familiar there is always more to learn and “you want to develop a best-practices approach to investing.”

There are many investment books to sort through, so when I am going to select one to better myself having a few methods of sifting through the clutter to save time is imperative. Over the years, I’ve found a few key things to look at before diving into a book; while they may not all apply all the time, a couple that are worth reviewing. The appendixes, the glossaries, the indexes, and the notes in the back of the book along with checking out the credentials of the author are routinely overlooked. This book has a nice little glossary in the back, so if you ever get mixed up on the definitions of the various financial terms thrown around (e.g. cap rate, NOI, GOI, Cash-on-Cash return, IRR, etc.) then you should find this helpful. The index has been helpful when jumping around to review specific items; can’t really complain about that. What really gets me with this book is the authors background. Mr. Gallinelli is an academic with real-world experience which is usually a helpful combination. Generally, the material will tend to be well researched and sourced while also being tied to actual deals without too much of the ‘look at what I did’ stuff that is common with some “gurus”. According to Columbia[1] after graduating from Yale and Southern Connecticut State he taught for a period then, leaving his teaching career, pursued REI. He started off with residential properties before expanding into other strategies. He is now an Adjunct Assistant Professor with Columbia’s master program in real estate teaching Real Estate Investment Analysis while still running a company involved in REI. From where I’m sitting, that’s definitely the kind of person I want to learn from.

The book is laid out in three major parts with supporting chapters. I would classify the parts as ‘identifying potential investments’, ‘financing the deal’, and ‘securing your assets’. When it comes to identifying the investment properties the author covers topics like where to look, comparing one deal with another, and doing the due diligence work to prevent getting a lemon. The first chapter in this part is figuring out your comfort zone and, with a list of pros and cons for different property types, it’s a good starting point for new investors. Once you move into the deal financing section you’ll get a solid review of the different financing options; mortgage categories, types of lenders, and the various forms interest and terms can take. You will also learn some ways to calculate how much you can borrow (what the bank thinks you can repay), how to compare your loan options, and how to convince lenders to finance your deal. However, one of my favorite chapters in this section (esp. for new investors) is the one on comparing the three purchase options; all your money (cash), all other people’s money (OPM/ 100% financed or no money down), or some cash (down payment and leverage). This is why I like the academic/experience combination, even though the author starts off saying to avoid the get-rich-quick techniques he still explains where those methods, like no money down, are viable and even wiser. The last part, which I described as ‘securing your assets’, has to do with the pieces of the puzzle that deal with buying, protecting, and managing your asset after your financial plan is in place. It will cover issues on negotiating offers, obligations from the type of financing used, how to read a closing statement to make sure what you thought is what you get so other people’s errors don’t add cost, and an overview of different legal structures for ownership. The last chapter in this section is an overview of what comes after closing the deal. You will go over being a landlord and property management concerns. The author covers his ‘golden rules’ of being a good landlord and the type of team you need to build for better management; attorneys, accountants, handymen, rental agents, property managers, and contractors. He also discusses which tasks and under what situations you can do it yourself, the why and when of outsourcing.

Overall, I would say this is a great book for someone just starting out in REI. It has a great overview of the full process which you can check yourself against. As stated earlier, this isn’t only helpful for complete beginners, those that have already completed a few deals could double check their work. If it highlights an error that you’ve been lucky to get away with you can adjust your methods before they become entrenched bad habits. An additional feature that permeates the entire book is the authors “Rules of Thumb,” which are nice quick references. To be sure, these rules are generalities of advice and don’t fit every situation; make sure to double check that they make sense in your unique situation. Due to its broad spectrum, no particular area goes into elaborate detail. The benefit here is it helps you identify areas where you need more knowledge; you can then research those pieces of the puzzle in more detail as needed.